How do I hire my first employee?

Hiring your first employee requires an EIN, an I-9 and W-4 for the new hire, enrollment in state unemployment insurance, a payroll setup to withhold taxes, and workers' compensation insurance in most states. The process has federal and state layers — skipping any step creates legal and financial exposure.

Hiring your first employee transforms your business's legal and tax obligations overnight. You're now an employer responsible for withholding taxes, matching FICA, paying unemployment insurance, verifying work authorization, and complying with federal and state labor law. The SBA's guide to hiring employees is the recommended starting point for the full federal checklist.

Federal requirements: what the IRS and DOL require

EIN: If you don't already have an Employer Identification Number, apply free at IRS.gov before anything else. See how to get an EIN.
Form I-9: Verify the employee's identity and work authorization within 3 business days of hire. Required by the Department of Homeland Security for every new hire, including U.S. citizens.
Form W-4: The employee completes this to tell you how much federal income tax to withhold. Current version at IRS.gov.
FICA withholding: Withhold Social Security (6.2%) and Medicare (1.45%) from each paycheck, and match those amounts as the employer.
FUTA: Register to pay Federal Unemployment Tax Act (FUTA) tax — 6% on the first $7,000 of each employee's wages annually (offset by state unemployment credits).
New-hire reporting: Report every new hire to your state's new-hire directory within 20 days of their start date — required under federal law (42 U.S.C. § 653a) for child support enforcement.

State requirements

Every state adds its own layer. Most states require: registration with the state department of revenue to withhold state income tax, registration with the state labor or workforce agency for state unemployment insurance (SUI/SUTA), and registration for state-specific programs (paid family leave, disability insurance in several states). The SBA's state-by-state resources link to each state's relevant agencies. Do this before the first payday.

Workers' compensation insurance

Most states require employers to carry workers' compensation insurance as soon as they have at least one employee (some states have a threshold of 2–5 employees). Workers' comp covers medical expenses and lost wages for work-related injuries. Requirements, exemptions, and state fund options vary — check your state's department of labor or industrial commission. See what is business insurance for a broader overview of coverage types. Failing to carry required workers' comp is a misdemeanor or felony in many states.

Set up payroll before the first payday

See how to set up payroll for your business for the complete setup walkthrough. In summary: enroll in EFTPS to make federal tax deposits, set up your pay schedule, and automate withholding calculations. The IRS Employment Tax Deposit schedule determines when deposits are due — most new employers are monthly depositors. If hiring means you need a working capital cushion to bridge payroll during the ramp-up period, one application to ClearValue Lending routes to one matched lender partner.

Federal employer obligations

Employers must report all new hires to their state's new-hire directory within 20 days of the hire date, as required under 42 U.S.C. § 653a (the Personal Responsibility and Work Opportunity Reconciliation Act). — DOL — New Hire Reporting
Employers must complete Form I-9 for every new employee to verify identity and eligibility to work in the United States, within 3 business days of the hire date. — USCIS — I-9 Central
The SBA advises employers to check state and local requirements separately from federal requirements, as workers' comp, paid leave, and minimum wage rules vary significantly by jurisdiction. — SBA — Hire and manage employees

Key takeaways

Get an EIN before you extend any offer — you can't withhold taxes or open payroll without it.
Complete Form I-9 within 3 business days of the hire date — no exceptions, including for U.S. citizens.
Register for state income tax withholding and unemployment insurance before the first payday.
Report the new hire to your state new-hire directory within 20 days — required under federal law.
Workers' comp insurance is mandatory in most states from the first hire; skipping it is a criminal offense in many jurisdictions.